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A Guide to the Administration Process

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A Guide to the Administration Process A guide to the Administration Process Appointment by the holder of a Qualifying Floating Charge (“QFCH”) What is administration? Administration is a court process whereby one or more qualified insolvency practitioners are appointed to manage the affairs of a company [or partnership]. The advantage of this process is that it provides protection from the company’s creditors whilst a restructuring plan or con- trolled disposal strategy is implemented. The Administration process has been utilised by distressed companies since its in- troduction in 1986 and this legislation underwent an overhaul in 2003. The pur- pose of the new legislation was to encourage the use of business rescue mech- anisms in order to preserve viable businesses. As a result of the 2003 legislation the Administration procedure has been made more accessible and streamlined, allowing a floating charge holder, the Company or its di- rectors, to appoint Administrators, in certain circumstances, without a court hearing. The Administration process is governed by a number of Statutory Instruments. These are: • The Insolvency Act 1986 [“IA86”] • Insolvency Rules 2016 • The Enterprise Act 2002 • EC Regulation on Insolvency Proceedings 2000 • Small Business, Enterprise and Employment Act 2015 What is the purpose of administra- allowing a sale of the business and assets as a going tion? concern or through an orderly wind-down. Realising property in order to make a distribution to one or The Administrators appointed have a duty to act in the best more secured or preferential creditors interests of the creditors of the company. Legislation sets Should the previous 2 objectives not be achievable then the out the purpose of the Administration and since the intro- Administrators’ objectives would be to realise the assets of duction of the Enterprise Act 2002 [effective 15 Septem- ber 2003] this has been split into 3 objectives. These are the business and distribute them, in accordance with the as follows: priorities defined by the IA86. Rescuing the Company as a going concern If none of the 3 above objectives are achievable then The Administrators must perform their role to achieve this Administration would not be the appropriate process. If objective unless they consider that it is not practicable to Administrators are already appointed and it was established rescue the company as a going concern or that the second that one of the objectives could not be achieved, the objective (see next objective) would achieve a better result Administrators would seek an end of the Administration. for creditors. Who can appoint administrators? This objective would typically be achievable in situations where there are third party funds available to return A number of parties are capable of appointing Adminis- the company to solvency, usually from an investor in the trators. These are: company or through the proposal and acceptance of a Company Voluntary Arrangement [“CVA”]. • Qualifying Floating chargeholders • The Company Achieving a better result for creditors as a whole than would • The Directors be likely if the company were wound up • Justices chief executive for a Magistrates court If the first objective is not achievable then the second • One or more creditors of the company objective is to achieve a better outcome than a winding up • The supervisor of a CVA of the company. This is often facilitated by the protection of • A liquidator the moratorium provided by an Administration Order • A qualifying floating charge holder where the company is in compulsory winding up The process for the appointment of Administrators differs court application. depending upon the applicant. Outlined in the process of obtaining an administration order is the process for the appointment of As the ‘in-court’ process is relatively rare, this document only deals Administrators by a Qualifying Floating Chargeholder (“QFCH”). with the ‘out of court’ procedure. The summary of the process for an in-court application can be provided upon request. Creditors who are holders of fixed rather than floating charges are creditors of the Company and as such can utilise the ‘in court’ Enforceability of charge procedure should they wish to do so. The charge must be enforceable for an Administration Order to be obtained. This is typically achieved through the issue of a demand What is a Qualifying Floating Charge? for the repayment of the outstanding balance. Provided time is given to the Company to repay the amount concerned and that A QFC is defined as an instrument which: the payment is not received this normally enables the charge to be enforced. It may be necessary for legal advice to be obtained • States that paragraph 14 of Schedule B1 of the IA86 applies for non-standard floating charges to ensure that the document is (Power to appoint an Administrator); or enforceable. • Purports to empower the holder of the floating charge to appoint administrators of the Company; or Notice of intention to appoint • Purports to empower the holder of the floating charge to A Notice of Intention to appoint is completed where the Company make an appointment which would be the appointment of has prior ranking Qualifying Floating Chargeholders. These include an Administrative Receiver and on its own or together with both QFCHs who hold floating charges dated prior to that of the other charges, the floating charge relates to the whole or creditor seeking the appointment and where there is a priority substantially the whole of the Company’s property and the agreement in place providing priority to another QFCH. charge is enforceable. At least two business days notice must be given to the prior Those creditors who hold floating charges dated prior to 15 raking chargeholders. The prior chargeholders may consent to the September 2003 may be in a position to appoint an Administrative appointment, remain silent or seek the appointment of their own Receiver as an alternative to an Administrator. There are respective Administrator or Administrative Receiver (if their charge pre dates advantages and disadvantages of the two differing processes and 15 September 2003). if in doubt professional advice should be sought as to which process is most appropriate for the circumstances. Should the Company require the protection of the moratorium during this interimYou provide period your the goods notice and of intention to appoint an When can administrators be appointed? Administrator is filedservices at court. as normal to your customer Under most circumstances Administrators can be appointed by a Interim moratorium QFCH using the out of court procedure. There is no requirement In the period between completion of the Notice of Intention for the Company to be insolvent but, as above, the charge must to appoint an Administrator and the appointment, an Interim be enforceable. There must therefore have been some triggering Moratorium may be obtained through the filing of the Notice of event under the terms of the security such as the receipt of a Intention to AppointYou in Invoice Court. your customer notice of intention to appoint an Administrator by the Director/ as normal Company, failure to repay a demand, etc. Upon the filing of this document the Company is protected from action from its creditors (excluding prior ranking QFCHs), without However, if any of the following apply then appointment of the express leave of court. The Moratorium exists for a maximum Administrators may not be possible or an application to court would of 5 days. be required: Send your invoices to the in- Appointment of administrator voice finance provider who • If a Provisional Liquidator is in office; or Following receipt of the consent, or in the absence of an objection • If the Company is in liquidation; or from the prior rankingwill advance chargeholder a percentage (and of at the expiry of the two • If an Administrative Receiver is already in office. clear days notice period), thethe Administration invoice Order may be made. Who can be appointed administrators? Where no prior raking chargeholders exist the notice of intention to appoint and the interim Moratorium can be dispensed with and a notice of appointment together with statements from the Only persons who are licensed Insolvency Practitioners can act Customer pays invoice and proposed Administrators filed in court. as Administrators. The Administrators must be independent of remaining percentage is the company and ensure that there are no actual or perceived It is possible where timingreturned is critical,to you for an appointment to be made conflicts of interest. out of hours through the filing o an appointment document in court The Process for obtaining an by fax. administration order - By QFCH Upon filing the relevant form the Administration becomes effective. Type of application In the majority of circumstances a QFHC can utilise the streamlined out of court procedure. A full court application and hearing is required if a winding up order has already been made but the mere presentation of such a petition does not prevent an out of order Matters following appointment The existing lenders would normally be contacted at an early stage of the process to explain the benefits of continued trading and to Moratorium determine whether they would be prepared to fund it. Upon the granting of an Administration Order no legal process or proceedings may continue against the company unless permission Employees is obtained from court or the consent from the Administrators is As indicated in the trading section it is often necessary to make the obtained. difficult decision to make a number of employees redundant in order to reduce costs. The cost reduction exercise is often necessary to This moratorium protects the company against action from ensure the business’ survival through the Administration process. creditors who may wish to wind the company up or repossess goods (such as leased assets, stock subject to retention of title or Employees who are made redundant will normally qualify for a landlords wishing to issue distress).
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